Weekend Long Read: China’s Clean Energy Rise Offers Lessons for the West

As the world vigorously advances towards a clean energy future, it's paradoxical to see Western nations imposing protective tariffs on clean-energy technologies, despite historically championing free-trade principles. Both the U.S. and Europe have targeted Chinese imports of electric vehicles (EVs) and solar panels with these tariffs to safeguard their own industries. China, by dominating the manufacturing of solar, batteries, EVs, and wind power, complicates the clean-energy transition, potentially making it more expensive if tariffs result in successful re-shoring or supply chain diversification [para. 1][para. 2].

Proponents of tariffs argue for creating a level playing field for competition, suggesting Western companies possess the technology but cannot compete against Chinese subsidies and cheap labor. However, this perspective overlooks the complex industrial policy landscape that has led to China’s dominance in clean energy. China's strategy involves mastering and localizing clean energy technologies as part of its economic development plan, employing a wide array of policies beyond simple subsidies [para. 3][para. 4].

China's success in scaling and localizing wind and solar tech involved deploying subsidies modeled after those in Western countries. For instance, they adapted Germany's feed-in tariffs to benefit domestic solar and wind industries, which initially relied on subsidies under the UN's Clean Development Mechanism (CDM) [para. 5]. These subsidies were closely tied to localization, ensuring economic benefits stayed within China. For example, foreign companies had limited access to subsidies and project approvals, and local connections were emphasized [para. 6]. In the EV sector, subsidies were tied to locally produced batteries and mastering core EV technologies, with a whitelist of qualifying companies that excluded most foreign firms until the list’s eventual abolition [para. 7].

China's central government also leaned heavily on industrial policy to boost clean energy innovation, collaborating with local governments to form regional manufacturing clusters. These clusters were strategically planned, often avoiding duplication and waste seen in less coordinated regional policies. By concentrating investments and policy incentives, particularly in regions with a strong existing manufacturing base, China fostered clusters in solar and battery manufacturing [para. 8][para. 9].

Market dynamics complemented policy efforts, especially in the solar industry. Throughout the 2010s, China’s local equipment providers had to quickly adapt and improve due to the proximity and competition, leading to dominance in global supply chains for manufacturing tools. This innovation ecosystem, evidenced by rising patent counts and influential scientific work, allowed China to drop manufacturing costs and improve efficiencies significantly [para. 11]. Companies like BYD Co., which began by mastering every aspect of their manufacturing process, exemplify this strategy. BYD's vertically integrated model has helped spawn innovation clusters in Shenzhen, influencing the entire industry [para. 12].

China's manufacturing principles are now being exported, as seen with battery manufacturer Contemporary Amperex Technology Co. Ltd. (CATL), which invests in local suppliers abroad to replicate its domestic success. CATL's efforts in Europe aim to enhance local production quality and response times, essentially acting as a catalyst for the European battery industry [para. 13].

Western countries considering similar industrial policies need to look beyond tariffs and subsidies. Effective industrial policy, focusing on building integrated manufacturing clusters rather than disaggregated production, is essential. Otherwise, protection and subsidies might become permanent fixtures, making the energy transition much costlier [para. 14][para. 15].

In summary, China's clean-energy ascendancy wasn't achieved through free trade; it was driven by deliberate policy and strategic clustering. For Western nations to compete globally in clean energy technologies, consistent policies and cluster-building are vital [para. 16].